Many people know how important life insurance is, and they may even be carrying a policy; however they might be underinsured. This means that even though they have insurance, it is not enough for their needs. It can be hard to calculate how much life insurance you need. So here are some things you should factor into how much life insurance you purchase.
1. Any Debt That You Have
It would be great if all of your debt died with you, but sadly that is not the case. There is some debt that may be forgiven with death, like government student loans, but most other debt will simply be passed onto your family. This means that your family may not be grieving your death, but also will have to figure out a way to pay off all of your debt.
When you purchase your life insurance policy, you should consider how much you owe in car debt, credit cards, your mortgage, and so forth. Then add enough into your policy so that your family can simply pay off these debts with the insurance payout.
2. Additional Living Expenses
Life insurance should allow your loved ones to pay for their living expenses after your death. For example, you should expect that your family will take some time off work after your death to grieve. If they have money set aside for living expenses, they won't have to worry about finances while they grieve.
In addition, if you are the primary breadwinner, you need to consider how long it will take your spouse or children to get on their feet after you pass. You should calculate how much they will need annually to live off of, and multiply that number by how many years you assume they will need help. If your kids are teenagers, it may not be as long as if you have toddlers at home. Living expenses will probably account for a large amount of your life insurance policy.
3. End-of-Life and Funeral Expenses
Towards the end of your life you might have some expenses such as medical expenses. Your life insurance can help pay for all of your end-of-life expenses, including your funeral, which can be pretty expensive. Since the life insurance policy is paid on death, your family can have that money quickly to cover all of these expenses.
By factoring in all of these things you can accurately calculate how much life insurance to purchase. For more information and advice, contact an insurance agency like Daniel L. Rust Insurance.